Aerospace and defense company TransDigm (NYSE:TDG) missed Wall Street’s revenue expectations in Q4 CY2024, but sales rose 12.1% year on year to $2.01 billion. The company’s full-year revenue guidance of $8.85 billion at the midpoint came in 0.6% below analysts’ estimates. Its non-GAAP profit of $7.83 per share was 1.1% above analysts’ consensus estimates.

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"I am very pleased with our first quarter operating results and strong start to our fiscal 2025," stated Kevin Stein, TransDigm Group's President and Chief Executive Officer.

Company Overview

Supplying parts for nearly all aircraft currently in service, TransDigm (NYSE:TDG) develops and manufactures components and systems for military and commercial aviation.

Aerospace

Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.

Sales Growth

A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, TransDigm grew its sales at a mediocre 7.4% compounded annual growth rate. This fell short of our benchmark for the industrials sector, but there are still things to like about TransDigm.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. TransDigm’s annualized revenue growth of 20.3% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

TransDigm also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don’t accurately reflect its fundamentals. Over the last two years, TransDigm’s organic revenue averaged 16.3% year-on-year growth. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, TransDigm’s revenue grew by 12.1% year on year to $2.01 billion but fell short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 11.1% over the next 12 months, a deceleration versus the last two years. Still, this projection is noteworthy and suggests the market is baking in success for its products and services.

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Adjusted Operating Margin

TransDigm has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 41.2%.

Looking at the trend in its profitability, TransDigm’s operating margin rose by 13.9 percentage points over the last five years, showing its efficiency has meaningfully improved.

This quarter, TransDigm generated an operating profit margin of 48.6%, up 4.6 percentage points year on year. This increase was a welcome development and shows it was recently more efficient because its expenses grew slower than its revenue.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

TransDigm’s EPS grew at an astounding 18.9% compounded annual growth rate over the last five years, higher than its 7.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into TransDigm’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, TransDigm’s operating margin expanded by 13.9 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For TransDigm, its two-year annual EPS growth of 38.3% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q4, TransDigm reported EPS at $7.83, up from $5.41 in the same quarter last year. This print beat analysts’ estimates by 1.1%. Over the next 12 months, Wall Street expects TransDigm’s full-year EPS of $34.65 to grow 12%.

Key Takeaways from TransDigm’s Q4 Results

Revenue missed, EBITDA was in line, and EPS beat. The company reaffirmed its full-year revenue guidance and slightly raised its EPS guidance, although even this new outlook came in below expectations. Overall, this was a mixed quarter. The stock traded down 1.3% to $1,337 immediately after reporting.

TransDigm underperformed this quarter, but does that create an opportunity to invest right now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.